By Yoon Ja-young
Staff Reporter

Household economies are falling into terrible shape amid falling income and growing debt.

According to Statistics Korea, nominal earned income of households averaged 2.27 million won a month in the third quarter, down 0.3 percent from the same period last year.

It is the first time for the country to see a fall in earned income.

Income after adjusting for inflation went down by 2.3 percent from a year ago.

Meanwhile household debt is growing ― the aggregate balance recorded 712.8 trillion won in September, up 5.4 percent from a year ago.

Total disposable income, meanwhile, grew only 4.6 percent to 274.3 trillion won. The capability of paying off debt, or the ratio of the household debt to gross disposable income, recorded 2.6, the highest ever, meaning each household has a debt load of over two-and-a half times their income.

The ratio stood at 1.64 in 2000.

Economists warn that this could hinder economic recovery, as debts could grow as the interest rate is likely to see a hike in the first quarter next year.

"The interest rate hike and falling housing prices amid snowballing debt would slash disposable income, causing a fall in consumption," the Hyundai Economic Research Institute reported.

"Financial companies could also fall ― starting with non-bank lenders ― if individual bankruptcies grow," it added.

Consumer sentiment is already turning more pessimistic. According to the central bank, the consumer sentiment index recorded 113 in November, falling from 117 in October. Though the figure is still above 100, which means more people expect the economy to get better, the figure fell for the first time since March.

"The falling index is based on the estimate that economic growth will slow in the fourth quarter, amid a fall in stock and real estate prices," the Bank of Korea said.

Households are even cutting spending on education, with expenditure dropping 1.1 percent from a year ago in the third quarter, the first time ever since the fourth quarter of 1998 when the country was hit by the Asian financial crisis.

The central bank said interest rates on bank deposits averaged 3.16 percent from January to October, dipping from an average 5.46 percent last year.

After adjusting for inflation of 2.8 percent, however, the real interest rate stands at 0.36 percent, the lowest level since 2004, when it recorded 0.12 percent.

chizpizza@koreatimes.co.kr